Tuesday, July 26, 2011

Incentives Re-Re-Revisited

We've talked alot in these articles about the driving mechanism in rational decision making, the incentive. We've discussed how some incentives can be monetary, some are spiritual, and some for those not spiritually inclined are those that just make you feel good.

For corporations, it's often exactly the same. For publicly traded companies, there are laws that force corporations to seek the profit incentive, but accounting concepts such as Goodwill, tax incentives such as the charitable donation write down, and other such allow them to be generous to an extent.

Corporations are about to have an opportunity to not only turn a profit, but also do what is best for their employees: Cancel their health insurance.

WHAT?? Yeah, you heard me. Not only is that the profitable alternative, but it will likely lead to better health coverage options for less money for most employees. Thanks to a poorly drafted, ill-considered, hastily passed, unread health care laws enacted last year a corporation will be able to save money by cancelling their employees health insurance plans, paying a small fine to the government (less than the cost of the plan), and then employees who make less than $70,000 per year (most working Americans!) can get government subsidies up to $7,000 per year to purchase better plans from the Health Insurance Exchanges.

Drafters and defenders of the poorly written statute claim that societal goodwill and the desire to be a Good Employer will stay the hand of most employers. Well, they haven't been paying attention. This is a double incentive. A- Saves corporate money! Hire more people and/or pay higher salaries! B- This is a financially beneficial move for the employees, especially those that already contribute a healthy amount toward their own health care.

But, wasn't that survey discredited. While leftist bloggers did attack the survey, McKinsey & Co. did a fair job defending their methodology.

If I were a shareholder and it made sense for the company to do this, I might insist on it. A former director of the Congressional Budget Office recently issued an analysis that claimed that based on 30% droppage rate, that this beautifully drafted, artfully prepared, sarcastically described piece of legislative dung will wind up costing us an additional trillion dollars....more money we don't have.